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By XE Market Analysis February 22, 2018 7:28 am
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    XE Market Analysis: North America - Feb 22, 2018

    The dollar came off the boil during the London AM session after posting fresh gains in Asia. USD-JPY was an exception, having dipped quite sharply at the Tokyo fixing (on netted out corporate demand for yen), posting a low at 107.15, before recouping. EUR-USD recouped toward 1.2300. A miss in the February German Ifo business confidence, which dove to a headline reading of 115.4 from 117.6, the lowest reading since last September, had only a fleeting negative impact on the euro. Japan's vice minister of finance for international affairs (the power position regarding forex intervention decisions), Asakawa, spoke of the yen for a second straight day, this time saying that the BoJ's monetary policy isn't aimed at weakening the yen. Yesterday said "I cannot help but assess that the yen movements as one-sided." Cable has been tracking EUR-USD direction, trading lower, while an unexpected downward revision in the UK's second estimate Q4 GDP, to 0.4% q/q from 0.5% q/q, helped the pound on its way. Cable logged an eight-day low at 1.3856.

    [EUR, USD]
    EUR-USD recouped toward 1.2300 amid a downturn in the dollar during the London AM session after rising in pre-European open session in Asia. The decline in EUR-USD in Asia extended losses for a fifth consecutive session, logging a 10-day low of 1.2259. Trend support draw from the daily low points of this nascent down trend comes in at 1.2232-33, and resistance at 1.2339-40. The day's low was seen following the release of the FOMC minutes to the late January policy meeting, which showed a fairly balance view but was highlighted by the Fed's emphasis on upside growth risks following the tax cuts. We expect the prevailing down phase in EUR-USD will persist as markets are putting focus on the spike in U.S. Treasury yields following last week's perkier than anticipated CPI data out. Last week's low at 1.2206 provides downside target. Trend resistance is at 1.2324-25.

    [USD, JPY]
    USD-JPY has traded softer today following four straight up days. The move reflects a broader bid in the yen, with similar price action being seen in EUR-JPY and other yen crosses. USD-JPY clocked a low of 107.15, about 40 pips below yesterday's New York closing level. The movement has been concomitant with a weakening in global stock markets (which the exception of Chinese markets, which have been playing catch-up following the prolonged Lunar New Year break). There has also been talk of Japanese repatriation flows ahead of the fiscal year-end at the end of March, while revved up expectations for Fed tightening in the wake of last week's perky U.S. CPI data is seen, at least by some, as a likely cause of fresh global market volatility, which would be supportive of the yen. Japan's vice minister of finance for international affairs (the power position regarding forex intervention decisions), Asakawa, spoke of the yen for a second straight day, this time saying that the BoJ's monetary policy isn't aimed at weakening the yen. Yesterday said "I cannot help but assess that the yen movements as one-sided," USD-JPY has support at 107.10-12.

    [GBP, USD]
    Cable has been tracking EUR-USD direction, trading lower in the face of a generally firmer dollar amid rekindled expectations for Fed tightening, while an unexpected downward revision in second estimate Q4 GDP, to 0.4% q/q from 0.5% q/q, helped the pound on its way. Cable logged an eight-day low at 1.3856, putting in some further distance from last week's peak at 1.4145. With market narratives focusing on Fed tightening, we expect there is more downside to come for Cable. Support is at 1.3778-80. BoE's Carney said markets are correctly discounting rate hike prospects, in remarks made during parliamentary testimony yesterday. Sterling markets are discounting just over a 50% probability for a 25 bp rate hike at the May Monetary Policy Meeting, according a figure cited by the FT.

    [USD, CHF]
    EUR-CHF has been in consolidation mode in the mid 1.1500s over the last week after breaking lower in the week before, when a four-month low at 1.1446 was seen. The revival in risk appetite has helped prop up the cross.

    [USD, CAD]
    USD-CAD clocked a two-month high of 1.2717, with the pairing being buoyed by a generally firmer tone in the U.S. dollar and a soft oil prices. Technically, USD-CAD price action has been bullish since early February by Dow theory's higher highs and higher lows yardstick, while momentum indicators suggest that the uptrend is not so far looking stretched (the 14-day RSI reading is presently at 62.4). Support is at 1.2622-24. Some key Canadian data releases are looming, with retail sales up today and inflation data up tomorrow. We expect retail sales to dip 0.3% m/m in December on the heels of the tepid 0.2% gain in November. The ex-autos sales aggregate is projected to decline 0.2%. As for CPI, we project a 0.4% m/m rebound in January after the 0.4% drop in December, while the y/y figure is seen slowing to a 1.5% y/y pace from 1.9% y/y on the back of a well documented base effect after a one-off elevation in prices in January of 2017. Average weekly earnings are also due on Friday, where we expect a 0.3% m/m rise in December.

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